Being a freelancer offers flexibility and freedom but it also comes with its own set of headaches. From the dreaded tax return to the uncertainty of maintaining a regular flow of work, freelancers have to be on top of their game to make their business a success.
Of course, the other challenge can be taking out a mortgage. Are there mortgages for freelancers? How many years of accounts must you have to be eligible for a mortgage? Can you even apply if you are freelance? These may be some of the questions you have asked yourself if you are a freelancer who is keen to get on the property ladder.
The good news is – freelancers can indeed get a mortgage. Charlotte Grimshaw, head of mortgages at Suffolk Building Society, explained: “Nowadays, many more mortgage providers are inclined to lend to freelancers than perhaps they once were.
“Having been made redundant during the pandemic, many people turned to freelancing and in most cases, they haven’t looked back as they embrace the autonomy and freedom of being their own boss – but some may be a little concerned if they need to apply for a mortgage for the first time or remortgage their existing property.
“However, the barriers that freelancers once faced in getting a mortgage are coming down, as lenders embrace different, and often multiple, sources of income.”
How do I find a mortgage for freelancers?
There are no specific deals for freelancers – but, if your paperwork is all in order, this shouldn’t be a problem.
Charlotte advised, instead of looking for ‘mortgages for freelancers’ start by researching ‘self-employed mortgages’.
“Some providers offer specific self-employed mortgages, while others offer freelancers access to standard mortgage products, as long as they meet certain criteria,” she explained.
“So if you don’t see any ‘freelance’ mortgage products it doesn’t necessarily mean the provider won’t lend to you.”
Charlotte also said you should try not to get too bogged down in worrying about whether your business structure will be suitable for a specific lender as most are adept at understanding the different ways freelancers are paid.
“Just make sure your finances are organised, comprehensive and up to date,” she said.
What do freelancers need when making a mortgage application?
So, what documents do you need to have in place in order to make a mortgage application?
Mortgage lenders need to see proof of earnings and stability of employment so when checking the credentials of employed applicants they gain much comfort from seeing payslips, according to Suffolk Building Society
Because this isn’t possible for freelancers, lenders will ask to see other evidence of earnings, work history and employment status and this will mean providing evidence of contracts, company accounts or your self-assessment tax slip (SA302s).
If you are a freelancer reading this and you plan to get a mortgage in the future, it will be well worth keeping all your paperwork organised.
Suffolk Building Society advises you ensure your work and contracting history are up to date along with your online profile – so keep your LinkedIn account current.
It’s also a good idea to be scrupulous about your credit report and make sure all your expenditure is declared and bank statements can be accounted for.
Charlotte added: “As mortgage lenders, we’re not trying to catch people out – we really do want to help people buy their dream home. Whether an applicant is a freelancer or not, it’s all about looking for positive supporting evidence.”
Which mortgage lenders can help freelancers?
It’s a good idea to speak to a broker to ensure you can gain access to the most varied range of deals on the market.
There are specialist lenders who can help freelancers and who will understand more about your income.
For example, Suffolk Building Society explained these lenders will understand that different industries make payments in different ways i.e. a videographer may be paid at the end of a project, whereas a marketing consultant may invoice once a month.
As long as the freelancer is being paid in what is considered a ‘normal’ way for that industry, lenders tend to take a favourable view.
Will I be able to include income from a side hustle in my mortgage application?
According to Suffolk Building Society, if your freelancing is a side hustle to your employed work then most lenders’ standard position is to use 50% of their freelancing work in affordability calculations.
The applicant should be prepared to provide tax returns as evidence that this income is sustainable.
Mortgage advice for freelancers running a limited company
Suffolk Building Society said freelancers running their own business must provide two years of company accounts – although some lenders may consider less. Make sure they are filed on time.
Some lenders may base their mortgage offer on salary and dividend, net profit or retained profit. Speak to an accountant to properly understand the relevant figures before applying for a mortgage.
Freelancers who have had a particularly poor year (such as due to the impact of the Covid pandemic) but can explain why, will still be considered for a mortgage.
Freelancers who are concerned about having a poor year before applying for a mortgage can ask their accountant for an estimated projections letter to support their case, according to Suffolk Building Society.
If you are a freelancer operating under an umbrella company you will need the services of a mortgage broker which specialises in this.
Sole traders making a mortgage application
Lenders like to see you have operated for at least two years as a sole trader, said The Suffolk. Make sure you keep all your paperwork and if you have a separate bank account for your business, even better.
According to The Suffolk, lenders may use a day rate calculation such as five times the value of daily contracts, multiplied by 46 or 48 weeks (to allow for some downtime/holiday etc).
Your self-assessment form will help them calculate previous earnings based on submission to HMRC so it’s important this is available.
If the applicant’s freelance work is in the same sector as their previous employed job, then an application can sometimes be supported by evidence of PAYE income in the form of P60 forms.
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